Stocks had a couple of opportunities this week to fulfill my hope of beginning a decent correction, but chose not to. I hate when that happens. As I wrote for much of March the negative divergences as well as a number of other head wind data points lined up in fairly convincing fashion. I did mention at one point that it looked too obvious, and appeared trap like. It was difficult to play counter intuitive with all the evidence and stay long, although that was the conundrum challenging most technicians for the last decade. It’s akin to telling your college prof he doesn’t know what he’s talking about.

The second of my four trading tenets is – “It is okay to be wrong, it is not okay to stay wrong.” I threw the towel in on my managed positions Thursday pm and on a couple of our swing trade positions Friday. Tomorrow is the first day of the month which has a high propensity to be positive even when the market is retreating. Within a week we will start Q1 earnings and I believe conference calls with forward looking outlooks could be more compelling than usual.

What changed my stance Thursday lies in a single chart that is generally dependable when considering market direction. As I mentioned when I closed positions Friday, the  High Yield market (Junk Bonds) was making new 2019 highs with action that suggests follow through. This asset class is often a good indicator of market tops as it has a tendency to reveal weakness before equities do. As you can see the ETF proxy for the group JNK barely stuttered step this week before continuing higher.

Granted this bullish picture of JNK could be related to the convincing break out in Treasury’s I also have been writing about. High Yield bonds are a hybrid of equities/bonds, but tend to lean more towards stocks. Not a stretch to think the break out move in Treasuries (with falling interest rates) pictured below could be having JNK leaning more to bonds influence currently? A few important cross currents and mixed messages here as rising bond prices usually align with falling stocks?

I am going to keep it brief tonight and show one more key chart that could be revealing about the next direction for equities. Chinese stocks have made a credible rebound after a forgetful 2018. The Shanghai Index has formed a technical pattern at odds with itself. A clear Bullish Flag pattern has formed off the Jan lows rally, but the triple top has been matched with a descending MACD.

I think whichever way this chart breaks in the coming weeks determines the next leg of the global stock market. I don’t see the trade talks coming to a definitive conclusion soon. Even if an announcement is made the interplay will take several years before a true analysis can be formed. Jawboning, which President Donald has used to his advantage over the last year, will continue to lose its luster IMO. A break through resistance in Shanghai could indicate a turn in the global economy which few are talking about right now. A break down will probably confirm the divergences.

Frankly I still want the market to go down.

Final Thought
“Help I am being held in a Chinese bakery!” – My Last Fortune Cookie

More later,
Max Power

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Disclaimer: Remember everything I said could be wrong, the market always has the last word.

 

 

 

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